Friday, August 08, 2003

armchair economics

In my business, one of the things I learned (and actually continue to learn about) is the difference between price and value as it applies to our service offerings.

Historically, the definitions of these terms were enough to give Adam Smith a headache, hence his thoughts on the paradox of value.

The simple-to-understand law of supply and demand easily accounts for price. What is rare is dearer.

But value is found in the fact that it costs to produce certain things or to offer quality service. For me, this involves the monthly burn on all business expenses (rent, utilities, salaries, materials and related expenses). So the relationship between the two is that value (perceived or otherwise) actually determines the price (along with market conditions).

From my vantage point of armchair economics, it still seems quite simple, but in practice it is challenging to pull off. After all, my perception of value is different from the client's perception of value.

It's a wild world and things change.

A few years ago, I wouldn't bat an eyelid at charging in the millions of pesos for a funky and functional website with some consulting thrown in. But after the big internet bust, year after year, the perceived value of a website goes down and with it, the price you can expect a client to pay. Granted, there are still large companies that are willing to pay premium, but even the price of the premium has lowered due to the deterioration of value. Nowadays, its about value added services. And a hell of a lot of good ideas. And command performance blah blah.

It gets even hairer when we talk about "pure" creatives. What is the value of excellent design? How do you assign a price to aesthetics? Just how much do you charge for an idea sans execution and production? In my experience, depending on how well you pitch or sell the idea, you can get an interesting range. Imagine, just thinking on behalf of a brand can translate to hundreds of thousands of pesos. Or not. The reluctant salesman in me has to be forced at gunpoint out into the open.

It took me quite a while to accept the fact that entities were willing to pay for ideas - because in terms of value (to me), ideas are dime a dozen - some of them are mediocre, a few actually good. But on the flip side, companies with no ideas want to buy our ideas - so that's great, right? Until the time comes to determine the price.

My partner can attest that I always, always feel a sense of guilt when it comes to pricing - yet another sign that betrays my background as a press-ganged businessman. I loathe assigning price, and shrivel at haggling - because, well, I'm a nice guy. Or so I believe.

As a creative, in the past, I was used to being used and being paid little. As a result, I attributed the price as the value of my work (after all, how could I not?). But then as time passed and I did work for others, particularly foreign entities, I realized that I had consistently undervalued myself. I tested my new understanding in a round of salary negotiations and was able to walk away with a job that paid much much more than I thought I could get. My sense of worth was dragged upside.

And of course I throw in social responsibility into the whole mess of pricing. If you are an NGO (non government organization), which, by definition, helps others, I will charge you much less than I would I giant corporation that rakes in revenues on the billions of pesos. Because, to my mind, the deep discount is our way of helping too.

Don't get me wrong. Our pricing is consistent with value, market realities and materials costs. Everything is justified and we have spreadsheets galore and accountants and all that. We've learned to adapt, tweaking business models, making changes, learning new ways to think, new ways to do things. I've developed my own way of management without reading a single management book or attending a single business class. It is definitely maverick, but it fits me like a glove.

But as I ride the sea that is the business environment, sometimes I am overwhelmed by all the swells and waves and the vastness of it all. Always, I long for stable ground.

In fact, I still cannot believe that I am businessman, when all I truly truly truly want to do is to write.

So now I find myself in the position of having a business and still being able to write - so all my namby-pamby excuses in either direction are gone.

Whatever.

Just don't ask me to price.

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